Customs, Excise and Gold Tribunal - Delhi
Shri Ram Rayons vs Collector Of Central Excise on 26 February, 1987
Equivalent citations: 1987(12)ECC151, 1987(11)ECR448(TRI.-DELHI), 1987(30)ELT850(TRI-DEL)
ORDER I.J. Rao, Member (T)
1. The appellants manufacture rayon tyre yarn cord, etc. The yarn and cord are wound on paper tubes. The corrugated paper discs are inserted in the paper tubes so that these tubes do not collapse when the yarn and cord are wound around the same. After winding, the paper tubes are placed in cardboard boxes. The appellants claim that in terms of Notification No. 201/79-CE (hereinafter referred to as the said notification), these three goods are 'inputs' and, therefore, the duty paid on the same should be allowed as set off on the duty payable on the final product, namely, on the nylon yarn and cord. The Assistant Collector of Central Excise disallowed the claim holding that the packing materials in the form of the three articles are not essential ingredients for the manufacture of the rayon tyre yarn and cord, "despite the fact that the cost of packing is included in the assessable value of these items on clearance under Section 4 of the Central Excises and Salt Act, 1944."
2. An appeal was then filed to the Appellate Collector, who rejected it holding that, use of goods "in connection with manufacture" does not amount to use of goods "in the manufacture". Referring to the arguments of the appellants, namely, that on one hand, the value of packing was included in the value of the goods and, on the other hand, packing materials are not considered as inputs used in the manufacture of the goods, the Appellate Collector observed as follows :-
"Therefore, while the appellants are right to the extent of observing that the Government cannot blow hot and cold at the same time and include the cost of packing material in assessable value but exclude it for the purpose of Notification No. 201/79 but then they have produced no evidence that out of the various material referred to by them which one satisfies the criteria laid down in this notification and constitutes goods used in a way or by the way of subjecting the principle goods to a process ancillary or incidental to the process of manufacture of finished excisable products. 3ust to illustrate the point, I would like to recall for instance, the well-known fact that in the case of tooth pase collapsible tube, although a container constitutes such goods which are not only essential but are used in a way or put to use by the way of a process which is obviously ancillary or incidental to process of manufacture. Again the primary packing which is essential for the main goods are now being considered as integral part of the process for completion of goods for commercial purposes but secondary packing is not being considered. However, the appellants have not cared to place the relevant material before us in this regard and argue on these principles and practices."
It is, therefore, seen that the issue that was being pursued by the appellants before the authorities below was whether packing is a process incidental or ancillary to the manufacture and, accordingly, is manufacture itself by virtue of the inclusive definition in Section 2(f) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act). It was noted that there were quite a few decisions on this issue by the High Courts as well as by the Tribunal which were mutually conflicting. Therefore, under the orders of the President, the matter was heard by a Larger Bench consisting of five Members.
3. We heard Shri V. Lakshmikumaran, Advocate, for the appellants. Shri Lakshmikumaran argued for some time that packing is a process of manufacture'. However, he did not pursue this argument. He argued that the materials, which paid duty under Tariff Item No. 68 of the Customs Excise Tariff and were used to pack the appellants' products, were inputs in terms of the said notification.
4. Shri Lakshmikumaran submitted that the period during which the dispute arose was November and December, 1979. He pointed out that on 28.2.1981, there was an amendment in the notification. Without referring to the amendment, we reproduce the relevant portion of Notification No. 201/79 for ease of convenience :-
Notification No. 201/79-CE "The Central Government hereby exempts all excisable goods (hereinafter referred as the said goods), on which the duty of excise is leviable and in manufacture of which any goods falling under T.I. 68 of the first schedule to the Central Excises and Salt Act, 1944 (1 of 1944 hereinafter referred as "the inputs" have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise, already paid on the inputs".
5. In the light of Shri Lakshmikumaran's arguments and in view of the wording of the said notification, the question to be decided by us is whether the packing materials have been "used in the manufacture" of the finished goods manufactured by the appellants and in whose packing they were used, and were, therefore, "inputs" in terms of the said notification. Shri Lakshmikumaran relied on the following case-law in support of his arguments that the three articles were 'inputs' :-
(i) 1983 ELT 1896 Union of India v. Bombay Tyre International.
(ii) 1985 (22) ELT 306 Union of India and Ors. v. Godfrey Phillips India Ltd.
(iii) Order No. 762/86-A, dated 23.9.1986 (Trib.) CCE, Calcutta v. Union Carbide India Ltd.
(iv) Orders dated 20.12.1986 (S.C.) Assistant Collector of Central Excise and Ors. v. Madras Rubber Factory and Ors. etc.
6. Shri Lakshmikumaran submitted that the appellants cannot manufacture and market their products without using the three articles, which are packing materials.
7. While interpreting the words 'used in the manufacture' occuring in the said Notification, Shri Lakshmikumaran relied on :-
(i) 1972 (29) STC 101 :
(ii) AIR 1965 (SC) 1310
(iii) 1965 (16) STC 563
(iv) 1986 (26) ELT 961
(v) 1979 (43) STC
8. Smt. J.K. Chander, the learned SDR, in reply submitted that the materials which are used for packing cannot be considered as inputs for the purpose of the said notification. Referring to the judgment of the Supreme Court in J.K. Cotton Spinning and Weaving Mills Ltd. v. Sales Tax Officer, Kanpur reported in 'AIR 1965 (SC) 1310', she submitted that the word 'manufacture' was examined by the Supreme Court in the context of Sales Tax Act and not in the context of Central Excises and Salt Act, 1944. Besides, the term 'manufacture' was examined not in a vacuum but only for interpreting Rule 13 and the concerned entries which were very wide. The Court, according to the learned 3DR, was concerned with the goods used for manufacture and processing as opposed to goods for resale. She further submitted that packing is not always an essential ingredient of manufacture and, in some cases, it could be so and in some cases it need not be so. With reference to the facts of the present case, she argued that the cones and other articles were not used for completion of 'manufacture' that they may be said to be used for easier distribution. She submitted that the appellants may seek relief under Rule 56A of Central Excise Rules but the goods cannot be considered as inputs for the purpose of the said notification.
9. We have carefully considered the arguments of both sides.
10. In 'Union of India v. Bombay Tyre International, etc. etc' (supra -para 5), the Supreme Court made certain observations about the nature of packing. Shri Lakshmikumaran referred to paragraphs 51 and 53 thereon. We note that the Supreme Court, in para 53 observed that the expression 'manufacture' is related to the taxable event and refers to a process which enters into the character of the article, while packing has been defined by Section 4(4)(d)(i) in relation to the value of the article. We had earlier observed that the learned Advocate was on the point that the articles in question were inputs in terms of the said notification (No. 201/79). The Supreme Court made the observations cited above in relation to 'manufacture' and distinguished the expression from 'packing'. Therefore, the ratio is not helpful to the appellants.
11. In '1985 (22) ELT 306' (Union of India and Ors. v. Godfrey Phillips India Limited and Ors.) also, the Supreme Court were examining the question relating to valuation, and has no direct application to the question before us. The same is the position with the orders of the Tribunal (Order No. 762/86-A dated 23.9.1986). In this judgment, the Tribunal, examining the question of includibility of cost of wooden packing in the value of dry cell batteries manufactured and cleared by the appellants. Therefore, the ratio of this judgment is not applicable to the facts of the present case where the question raised is different. The Supreme Court's orders dated 20th December, 1986, cited by the learned Advocate also dealt with the question of valuation only.
12. In (supra), the Suprefme Court were examining a sales tax matter in which, inter alia, the expression 'used in the manufacture of goods' came up for examination. The Court followed an earlier decision of the Supreme Court in the case of 'M/s. J.K. Cotton, Spinning and Weaving Mills Company Limited v. Sales Tax Officer, Kanpur' reported in '1965 STC 563'. We have perused this earlier judgment of the Supreme Court. The Court were examining the expression 'in the manufacture or processing of goods for sale' within the meaning of Section 8(3)(d) read with Rule 13 of the Central Sales Tax Act and Central Sales Tax (Registration & Turnover) Rules, 1957, respectively. Section 13 of the Act conferred powers upon the Central Government to make Rules on matters including enumeration of goods or class of goods used in the manufacture of, or processing of, goods for sale or in mining or in the generation or distribution of electricity or in other forms of power. In exercise of this power, Rule 13 was framed which, as amended at the material time, read as follows :-
"The goods referred to in Clause (b) of Sub-sectiontion (3) of Section 8, which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture of processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power."
Examining the expression in the manufacture of goods', the Supreme Court observed as follows :-
"The expression in the manufacture of goods' should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'. For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed calendered and pressed. All these processes would be regarded as integrated processes and included 'in the manufacture' of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression 'in the manufacture' of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business cannot be carried on. In our judgment, Rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under Section 8(1) be ingredients or commodities used in the processes, nor must they be directly and actually needed for 'turning out or the creation of goods'.
In our judgment, if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods 'in connection with manufacture of, or 'in relation to manufacture', or which facilities the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within Rule 13."
13. We note the submissions of the learned JDR that the observations of the Supreme Court in this judgment were not made in a vacuum but in the context of Rule 13 and, therefore, should not be made applicable to the expression, used in the said notification. We are not able to accept this view because the expression examined by the Supreme Court is similar to the expression used in the said notification, and there is no other definition or explanation of the expression in the notification itself. We, therefore, have to respectfully take the observation of the Supreme Court into consideration to interpret the expression 'used in the manufacture' occuring in the said notification. In the present case, it has been explained that without the three articles in question, the appellants would not be able to manufacture and to market their goods, namely, rayon tyre yarn, cord, etc. The goods have to be wound around the cord and the discs have to be used as stiffeners. Without these, the yarn will become only a lump and cannot be used. This position has not been controverted and it is clear that the yarn cannot be transported and marketed without the help of these two articles. The same observation does not, however, apply to the card-board boxes because even without being packed in the boxes, the yarn, which is wound on the tubes, is a completed product and can be bought and sold. The boxes are necessary only to protect the already manufactured yarn from elements and dirt and to transport the same to the market.
14. In this context, we have also considered the judgment of the CEGAT reported in '1986 (26) ELT 961 (Trib.)'. This judgment examined the question as to whether packing containers would be considered as inputs as visualised in Notification 201/79, as amended. In that case, the appellants requested permission to avail of proforma credit on corrugated boxes (received on payment of duty and used for packing carbon element and zinc element) in terms of Notification 201/79 and this was refused by the Assistant Collector and, later, by the Appellate Collector. We reproduce para 6 of this judgment :-
"We have carefully considered the facts of the case and the submissions made on both sides. We find that in the decision of this Tribunal in the case of Hindustan Lever Limited, Bombay v. Collector of Central Excise, Bombay (supra), it was observed that Notification No. 201/79 exempted excisable goods in the manufacture of which any goods falling under Item 68 (referred to as inputs in the Notification) had been used to the extent of duty of excise that had already been paid on the inputs. Whereas the term 'input' is of wide scope, the Department had wanted to narrow or restrict its scope and interpret the Notification to mean that Item 68 goods should enter into the composition and form part of ingredients of the finished goods, i.e., they should be used as raw material or components. Such a requirement, it" was held by the Tribunal, was introduced only on 28th February, 1982, by the amending Notification No. 105/82 which narrowed down scope of the 1979 Notification and the expression 'input'. It was as a result of this amendment that it became necessary that the finished excisable goods should, inter alia, be made from the Item 68 goods if they were to earn exemption. It was, therefore, held that the appellants were entitled to the benefit of Notification No. 201/79 in respect of printed cartons on which duty under Item No. 68 had been paid, used in the manufacture of synthetic detergents marketed in such cartons.
Again, in the case of Universal Cables Ltd., Satna v. Collector of Central Excise, Indore, reported in '1984 ECR 1864', it was held by this Tribunal that wooden drums used in the packing of electric wires and cables were to be treated as inputs for the purpose of Notification No. 178/77-CE."
But these observations do not help the appellants' case as facts in the cited cases are different. In the cited case, synthetic detergents were packed in the cartons for which credit was sought and, obviously, these detergents could not be sold without such packing. We had already held in this matter that the yarn after being wound around the cones is a complete product ready for sale. There is no question of anything more being used in its manufacture.
15. In the judgment in the case of Vasuki Carborandum Works v. State of Gujarat', reported in '1979 (43) STC 294', the High Court of Gujarat was examining the question whether Kathi (Twine), purchased and used by the applicants (Reference) for packing of manufactured goods for sale and, therefore, used as consumable stores, was used in the process of manufacture of goods for sale. In this judgment, the High Court followed the Supreme Court judgment in the case (supra) and answered the Reference in favour of the assessee. This judgment does not help the appellants in so far as the cardboard boxes are concerned but the ratio is applicable in respect of the other two articles.
16. We, thus, find that the judgments of the Supreme Court, Gujarat High Court and the Tribunal are all in favour of the appellants in so far as the paper tubes and discs are concerned. In the light of the discussion above, and following the ratio of the judgments cited before us, we hold that out of the three articles, for which the appellants claimed credit, two, which have paid duty under Tariff Item No. 68, have been used by the appellants in the manufacture of the finished goods and are, therefore, 'inputs' in terms of Notification No. 201/79-CE. The appeal is, therefore, allowed in respect of the paper tubes and discs but is rejected in respect of cardbord boxes.
M. Gouri Shankar Murthy, Member (J)
17. This reference to a larger bench was occasioned on account of the contention of the appellant to the effect that packing is a process incidental or ancillary to manufacture and in view of quite a few conflicting decisions on that issue.
18. That contention is now given up. Nevertheless, it is still one that arose in Appeal No. ED/SB/97/83-C (Collector of Central Excise, Bombay v. Dharamasi Morarji Chemical Co. Ltd.
19. My observations on that issue are recorded in the order relating to that appeal. Accordingly, I have nothing to add in this case.